S-REITs Weekly - UOB Kay Hian 2020-07-14: US REITs Troubled By 2nd Wave COVID-19; OCBC Trimmed Lendlease REIT Holdings

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FRASERS CENTREPOINT TRUST (SGX:J69U) LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU) ARA LOGOS LOGISTICS TRUST (SGX:K2LU)

S-REITs Weekly - US REITs Troubled By 2nd Wave COVID-19; OCBC Trimmed Lendlease REIT Holdings

• S-REITs retraced marginally by 0.6% w-o-w. Hospitality REITs Frasers Hospitality Trust (SGX:ACV), CDL Hospitality Trusts (SGX:J85) and Ascott Residence Trust (SGX:HMN) increased 2.1%, 1.9% and 1% respectively as hotels could start receiving guests on staycations.
• We turn our spotlight on Frasers Centrepoint Trust, a pure play on suburban retail malls in Singapore that provides a distribution yield of 4.8%.
• Maintain OVERWEIGHT on S-REITs. BUY
  • retail REITs CapitaLand Mall Trust (SGX:C38U) (Target: S$2.60) and Frasers Centrepoint Trust (Target: S$2.85),
  • hospitality REIT Far East Hospitality Trust (SGX:Q5T) (Target: S$0.62) and
  • office REIT Keppel REIT (SGX:K71U) (Target: S$1.30).

WHAT HAPPENED LAST WEEK

UOBKH S-REIT Index retraced marginally by 0.6% wow to 252.1 last week.

• Hotels will soon be able to usher in Singaporeans on staycations. Hoteliers can apply to Singapore Tourism Board (STB) to resume providing accommodation for purposes of leisure and opening recreational areas for children. Guests have to wear masks within the hotel, except when they are in their own rooms or eating. Only five individuals from different households are allowed to gather at any guest room. Hotel staff will screen guests for symptoms, including fever and running nose. Safety ambassadors are deployed to remind guests against clustering or loitering at common areas.
• See
  • S-REITs Share Price Performance;
  • S-REITs Target Price & Rating.

Top outperformers.

• ARA LOGOS Logistics Trust (SGX:K2LU) gained 6.1% with the appointment of new CEO Karen Lee, who previously held senior management positions at LOGOS SE Asia and Ascendas REIT (SGX:A17U).
• Keppel DC REIT (SGX:AJBU) gained 3.6% as data centres are beneficiaries of COVID-19 pandemic.
• Hospitality REITs Frasers Hospitality Trust (SGX:ACV), CDL Hospitality Trusts (SGX:J85) and Ascott Residence Trust (SGX:HMN) increased 2.1%, 1.9% and 1% respectively.

Top underperformers.

• US REITs ARA US Hospitality Trust (SGX:XZL), Prime US REIT (SGX:OXMU), Keppel Pacific Oak US REIT (SGX:CMOU) and Manulife US REIT (SGX:BTOU) lost 3.7%, 3%, 2.1% and 1.9% respectively, troubled by a second wave of COVID-19 infections in the US.
• Lendlease REIT (SGX:JYEU) dropped 3.7% as OCBC (SGX:O39), including subsidiaries Great Eastern Holdings (SGX:G07) and Lion Global, has recently trimmed their holdings.

SPOTLIGHT – Frasers Centrepoint Trust (BUY/ Target: S$2.85)

• Frasers Centrepoint Trust (SGX:J69U) has exercised its rights of pre-emption under the by-laws of PGIM Real Estate AsiaRetail Fund (ARF) to acquire 12.07% of ARF for S$197.2m. The acquisition was completed on 6 Jul 20 and increased Frasers Centrepoint Trust’s interest in ARF from 24.82% to 36.89%.

Acquisition is mildly DPU accretive.

• Assuming the acquisition had been effected at the beginning of FY19, pro forma FY19 DPU would have increased 0.13% to 11.987 S cents, while NAV per unit would have stayed unchanged at S$2.21.
• Pro-forma gearing of Frasers Centrepoint Trust post acquisition was 36.2% as at 30 Sep 19 (previously 32.9%). The acquisition is fully funded by debt.

Enlarged scale in suburban retail malls.

• ARF owns five suburban retail malls, namely Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square and Tampines 1, totalling 1.0m sf of NLA. These suburban retail malls share similar profile and characteristics to Frasers Centrepoint Trust’s malls, which focus on essential spending and F&B. They are located in populous residential areas and close proximity to transportation nodes. These characteristics ensure suburban retail malls are more resilient despite the COVID-19 pandemic.

Centred on essential necessity spending.

• Frasers Centrepoint Trust is a pure play on suburban retail malls in Singapore. Its portfolio comprises seven suburban retail properties in Singapore, totalling 1.4m sf of NLA. Basic necessities, such as F&B, supermarket & hypermarket and education accounted for 37.7%, 5.1% and 1.9% of gross rental income (GRI) respectively.
• Discretionary spending on fashion, leisure & entertainment and jewellery & watches accounted for only 13.5%, 3% and 2.5% of GRI respectively. Frasers Centrepoint Trust benefits from resiliency of suburban retail malls.

Maintain BUY.

• We expect gradual easing of social distancing restrictions under Phase 2 of reopening of the economy. Our target price of S$2.85 for Frasers Centrepoint Trust is based on DDM (cost of equity: 6.0%, terminal growth: 2.0%). See Frasers Centrepoint Trust Share Price; Frasers Centrepoint Trust Target Price; Frasers Centrepoint Trust Analyst Reports; Frasers Centrepoint Trust Dividend History; Frasers Centrepoint Trust Announcements; Frasers Centrepoint Trust Latest News. 

Jonathan Koh CFA UOB Kay Hian Research | Loke Peihao UOB Kay Hian | https://research.uobkayhian.com/ 2020-07-14

SGX Stock Analyst Report BUY MAINTAIN BUY 2.850 SAME 2.850

NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000

NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000